What is Partnership Agreement Drafting?
If you and other individuals want to start a business together, you’ll need a partnership agreement. This legally-binding contract contains information to govern your working relationship, such as ownership percentages and how decisions will be made.
By putting everything down in writing, you’ll protect your assets and ensure smoother operations.
Read the rest of this article to learn more about what information is included in a partnership agreement, tips for drafting one that’s legally sound, and why you should consult a qualified lawyer for assistance during the process to protect your interests.
What Key Terms are in a Partnership Agreement?
A partnership agreement should contain the following essential components:
- Contributions. Partners should have clarity about what they will commit to contributing to the business. This can include initial contributions and future capital.
- Ownership. This explains all partners’ ownership percentages and how both profits and losses will be distributed.
- Authority. There should be information about which partners have authority to make decisions, as this is a common trigger of disputes.
- Responsibilities. All partners should know what their duties are, down to details such as working hours if applicable.
- Withdrawal. The partnership agreement should include processes for future instances when a partner withdraws or leaves the business.
- Admission. If you want to bring more people into the business, the agreement should include processes for how they can be admitted.
- Governing law and jurisdiction. This is crucial to pin down because you want to avoid jurisdictional arguments should parties’ disputes go to court.
- Dispute resolution. Clarifying what dispute-resolution method will be used in the case of disagreements, such as mediation or arbitration, is important to specify in the contract. It prevents deadlocks and litigation.
What are Tips for Drafting a Partnership Agreement?
Your partnership agreement must be transparent and legally sound. Here are some tips to bear in mind when drafting it.
Clearly Define Profit and Loss Sharing
This is one of the most crucial elements of your partnership agreement. You’ll need to decide if the distribution will be an equal split or based on the percentage of ownership.
Make Room for Modifications
As your business grows, your partnership agreement might also need to change. To make it a smooth transition, you should include a modification clause in the contract. This should specify processes for how changes will be made and mention that consent from all parties will be required beforehand.
Specify Capital Contributions
You should include specific amounts for capital contributions from all business partners. This will ensure fairness while also giving the company enough capital it needs to finance various required operations.
Have Open Discussions
Before finalizing terms in the partnership agreement, have open conversations with the other partners. This will help you align your goals, commitments, and preferences so you can settle on terms that favor all of you.
Provide Termination Provisions
You might want to be included in the partnership now, but you never know what can happen in the future. Specify what conditions or events will trigger the end of the partnership and how assets will be shared after partnership dissolution.
Consider Legal Obligations
You should think about the legal aspects of your partnership agreement during the drafting process. Avoid legal issues by aligning the agreement with all local laws and regulations. This will ensure compliance and prevent partner disputes.
Avoid Potential Pitfalls
There are some mistakes to avoid when drafting a partnership agreement. Common pitfalls to be wary of include:
- Not including intellectual property (IP) clauses. You want to be specific about codes, patents, and other IP and who owns it to prevent disputes. This can also cause complications if the partnership ends.
- Ignoring liability risks. You don’t want your personal debts to be at risk due to another partner’s mistakes. Make sure you consult with a lawyer to assess the best business structure to protect your assets.
- Not putting the agreement in writing. Although you might have constructive discussions with other partners, you shouldn’t depend on verbal agreements. These can result in misunderstandings and legal disputes, so always have your agreements in writing.
How Does a Lawyer Help You With Partnership Agreement Drafting?
A lawyer is vital to hire when you want to draft a legally-valid and enforceable partnership agreement to protect your interests and reduce your risks. Here is how they will help you:
- Defining all partners’ roles and duties to prevent confusion that can result in disputes.
- Drafting legal terms that cover all aspects of the partnership. A lawyer will make them simple and easy for all partners to understand.
- Considering all potential risks and including appropriate terms that protect partners and the business from liability.
- Ensuring that all agreement clauses are aligned with the relevant laws, regulations, and industry standards.
- Tailoring the agreement to suit the business’s, and partners’, goals.
- Handling conflicts effectively by including dispute-resolution methods such as mediation or arbitration.
- Preparing exit strategies for partner withdrawal or business dissolution.
- Safeguarding all confidential information and data, such as by including non-compete duties.
- Reviewing and negotiating all terms so that the agreement is fair and reasonable prior to signing.
Where to Find a Lawyer for Partnership Agreement Drafting
Finding a lawyer to draft your partnership agreement doesn’t have to be time consuming. By searching for a lawyer on an online legal platform, you can easily connect with a qualified legal professional.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of vetted lawyers. They have the expertise and experience required when drafting and reviewing contracts.
To request that a lawyer on the ContractsCounsel platform draft your partnership agreement, follow these easy steps.
1. Go to the ContractsCounsel marketplace and post your project for free. You can include some details of what you require so that you’re matched with the most suitable lawyers.
2. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles. The platform provides extensive lawyer data, such as location, client ratings, years of experience, field of expertise, and previous projects completed on the platform.
4. Connect with a lawyer you think is best suited to your requirements. Hire them to draft your partnership agreement.
